9911796707
TMI Blog2012 (8) TMI 282X X X X Extracts X X X X X X X X Extracts X X X X ..... on 27.6.1993 and thereafter Rs. 3,80,000/- at the end of each quarter till the three year period ended on 27.3.1996. At the time of original assessment dated 29.12.1995, the AO noted that there was no physical movement of iron rolls which remained with ISIM. No physical possession was handed over by ISIM to the assessee. The assessee had also failed to give specific details of iron rolls. The AO also observed that the iron rolls were highly depreciable in nature and, therefore, prior to the purchase by the assessee these were heavily depreciated due to use by ISIM. The assessee had claimed depreciation of Rs. 17,48,750/- @ 50% of the normal rate for 100% of depreciation allowable on such rolls as in the relevant year this had been used for less than six months. The AO in the original assessment held that the rolls remained in the possession of ISIM throughout who was the actual owner. The AO held that it was a case of simple loan transaction which had been given the colour of lease transaction to reduce tax liability of the assessee. The AO, therefore, held that purchase and lease back transaction of iron rolls was a sham transaction and accordingly disallowed the claim of deprecia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d buying of goods and leasing them out on rent was not normal business of the assessee. The AO therefore, concluded that the transaction was a sham transaction entered into by the assessee with a motive of reducing tax liability. The AO accordingly disallowed the claim of depreciation of Rs. 17,48,750/- and assessed total income at Rs. 41,11,565/-. 4. The assessee disputed the decision of AO and reiterated the submissions made earlier that purchase and lease back of iron rolls was a genuine transaction and depreciation should be allowed. The CIT(A) remanded the matter to the AO for report in the light of observations of ITAT. In the remand report, the AO mentioned that the assessee had declared lease rentals in assessment years 1994-95, 1995-96 and 1996-97. The AO also reported that balance depreciation of 50% claimed by the assessee in 1994-95 had been allowed by AO in full. CIT(A) after considering details and material on record observed that the assessee had furnished copy of lease agreement, bills of purchase and also confirmation from ISIM as well as details of purchase of these rolls by ISIM as well as certificate from chartered engineer. CIT(A) also observed that finance pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n such transactions was not material and that constructive delivery was enough in case of the sale and lease back transactions. It was also submitted that purchase value of the rolls was supported by certificate of chartered engineer, a copy of which was placed before the authorities below and placed at page-74 of the paper book. It was also argued that lease rentals in respect of the same rolls had been taxed by AO in assessment year 1994-95 to 1996-97 and therefore, the transactions could not be held to be non-genuine. He however, admitted that, in assessment year 1994-95 in which balance 50% depreciation had been made, the assessment had been made under section 143(1). The ld. AR also placed reliance on the judgment dated 17.4.2012 of the Hon'ble High Court of Madras in the case of CIT v. M/s. High Energy Batteries (India) Ltd. in T.C. (Appeal) Nos. 579 to 581 of 2005 dated 17.4.2012 in which under similar situation the claim of the assessee had been allowed. It was also pointed out that subsequently, the assessee became a sick company under BIFR. It was accordingly urged that the claim of the assessee should be allowed and order of CIT(A) being reasonable and fair should be uph ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of payment for purchase and the lease rentals had been taxed in case of the assessee. CIT(A), therefore, held that transaction was not colourable particularly when there was no relationship between assessee and ISIM. 6.2 On careful consideration of the facts and circumstances of the case and material on record, we are unable to sustain the order of CIT(A). The Tribunal in this case had set aside the issue to the file of AO, to look into the fact as to what happened to the roll after expiry of lease period. The AO has given a clear finding that the rolls remained with the ISIM even after expiry of lease period. CIT(A) has however neither considered this aspect nor has given any finding on this issue. The transactions can not be considered as genuine merely on the ground that the same are supported by bills and agreements. It is a settled legal position that it is substance and not the form of transaction which is relevant. Further, for a transaction to be a colourable device, it is not necessary that there should be pre-existing relationship between parties. Even unrelated parties can enter into colourable transaction to avoid tax liability if it is mutually beneficial. In our view ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e rentals. In assessment year 1993-94 by showing the asset on lease the assessee claimed depreciation of Rs. 17,48,750/- and therefore, reduced the income to that extent. In assessment year 1994-95, the lease rental declared by assessee was Rs. 15,20,000/- against which depreciation of Rs. 17,48,750/- was claimed which means no tax was paid on the lease rent. The position in assessment years 1995-96 and 1996-97 has not been examined as to whether assessee has paid any effective tax on the lease rentals. This is required to be looked into particularly in view of the fact that the assessee subsequently is stated to have become sick. In case, it is found that the assessee has derived tax advantage due to this arrangement, it would support the case of a colourable device. Further, ISIM had claimed 100% depreciation on the assets which shows that these were highly depreciable asset. The assessee however, has shown the purchase price of Rs. 34,97,500/- when ISIM had purchased the same at Rs. 36,88,540/- i.e. almost at the same price even after use and claim of 100% depreciation. The valuation certificate of Shri Navin Goyal, a copy of which has been placed at page-74 of the paper book do ..... X X X X Extracts X X X X X X X X Extracts X X X X
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